Preparation of Purchase of Business In Purchaser’s Books: Journal Entry - SS3 Accounting Lesson Note

Question:

Given the transactions below, prepare the purchase of business in purchaser’s books; journal entry for ABC TECH.

1. Purchased raw materials for production on credit for ₦50,000 from XYZ Suppliers.

Sold finished goods for cash for ₦70,000 to LMN Retailers.

Paid salaries and wages to employees for ₦20,000 in cash.

Received payment for the sale of goods on credit for ₦30,000 from DEF Wholesalers.

Purchased office equipment for ₦100,000 on credit from GHI Suppliers.

Paid rent for the office for ₦5,000 in cash.

Made a loan repayment of ₦10,000 in cash to JKL Bank.

Answer:

PURCHASE OF BUSINESS JOURNAL ENTRY FOR ABC TECH

FOR THE MONTH OF APRIL

Account

Debit (₦)

Credit (₦)

21-Apr-23

Goodwill

Cash

ABC TECH

Purchase of Business

Goodwill

Property, Plant, and Equipment

800000

2000000

800000

800000

1200000

In the above journal entry, ABC TECH purchased a business for ₦2,000,000, consisting of ₦800,000 goodwill and ₦1,200,000 in property, plant, and equipment. The company paid ₦800,000 in cash and recorded the purchase of a business in its books.